This is a summary of the third quarter fiscal 2008 earnings call conducted by Blue Nile, Inc. (NILE) on November 4, 2008.
Management:
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Executive Chairman: Mark C. Valdon
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Chief Executive Officer: Diane Irvine
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Chief Financial Officer: Marc D. Stolzman
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Manager of Investor Relations: Eileen B. Askew
Third Quarter Highlights:
- Net profit fell to $2.3 million, or 15 cents per share, in the third quarter, from $3 million, or 18 cents per share, a year ago.
- Total sales lost 3% to $65.4 million, although international sales rose 53% from a year ago.
- October sales declined 20% percent, and international sales also began to drop.
- Blue Nile withdrew its full-year forecast, citing uncertainty over consumer spending.
In the third quarter Blue Nile posted sales of $65.4 million a decrease of 2.9% from the third quarter of 2007.
- The decrease in sales was due to an almost 6% decline in total orders, offset by a 3.1% increase in the average order value.
- The average selling price per order was $2,159 in the third quarter.
- On a geographic breakdown, U.S. sales declined 7% while international sales grew 53% year-over-year.
- Sales from the international market now account for just over 10% of net sales.
Consistent with reports from other retailers, sales were especially weak in late September following the dramatic events in the financial markets during that period.
Looking at the performance of products across various price points, Blue Nile continued to see a slow down in the price points between $5,000 and $25,000. These are aspirational price points where access to credit and customers trading down are hampering the growth in this category. Blue Nile also experienced softness at the very high end, those above $100,000.
Sales at the price points below $5,000 as well as in the $25,000 to $100,000 range grew year-over-year.
- Gross profits for the quarter was $13.3 million.
- As a percentage of sales, gross margin for the quarter improved to 20.3% compared to 19.8% in the third quarter 2007.
The year-over-year improvement in gross margin is a result of product mix shifts. The non-engagement jewelry category experienced modest growth for the quarter and this category carries a higher average gross margin than the engagement category.
- Net income for the quarter was $2.3 million.
- Earnings per diluted share were $0.15 meeting the low end of the guidance range.
- Net income per diluted share for the quarter includes stock based compensation expense of $0.07 compared to $0.05 for the third quarter of 2007.
SG&A totaled $10.0 million for the quarter.
- SG&A included $1.6 million in stock compensation expense in the third quarter of 2008, compared to $1.4 million in the third quarter a year ago.
- Excluding stock based compensation expense, SG&A as a percentage of sales was 12.9% compared to 12.5% in the third quarter of 2007.
- Third quarter results include higher year on year costs associated with last November’s expansion of the domestic fulfillment center.
Operating income for the third quarter totaled $3.3 million representing an operating margin of 5%.
Non-GAAP adjusted EBITDA which is defined as earnings before interest and other income, income taxes, depreciation and amortization, adjusted to exclude the effects of stock based compensation expense, was $5.4 million for the quarter consistent with the third quarter of 2007.
Interest income totaled $184,000 for the quarter, compared to $947,000 in last year’s third quarter.
- The decrease of interest income is due to lower interest rates and a lower average cash balance compared to the third quarter of 2007 as a result of the share repurchases.
- The effective tax rate for the quarter was 34.4% compared to 35.0% a year ago.
- Blue Nile ended the quarter with a cash balance of $26.6 million.
During the quarter Blue Nile repurchased 593,700 shares of its common stock for a total of $23.2 million.
At the end of September, 2008 shares outstanding totaled 14.5 million compared to 16.0 million a year ago. Since the inception of the buyback program in the first quarter of 2005, Blue Nile has repurchased 4.4 million shares for a total of $160.0 million. This amount represents 25% of the shares outstanding at the inception of the program.
